As a general rule, attorney’s fees incurred in connection with a divorce are personal expenses and thus, not deductible. However, there are five separate bases upon which all or part of attorney’s fees may be deductible:
- As an ordinary business expense.
- As an expense for the production or collection of income.
- As an expense for the conservation of income-producing property.
- As a fee paid for tax advice.
- As a business expense of a controlled corporation joined as a party.
In order for a taxpayer to bear his or her burden of proof that the advice rendered in a dissolution is tax deductible under one of the categories above, the attorney must send the client a letter at the conclusion of the case which breaks down the services between “tax advice” and “non-deductible work.” I will be happy to provide you with this breakdown upon request. It should be pointed out that the deductibility of attorney’s fees is only of advantage to you if you itemize deductions on your tax returns.
After you have read this letter, I would appreciate it if you would sign the original where indicated and return it to me in the enclosed self-addressed, stamped envelope, keeping the enclosed copy for your records. I would appreciate it if you would keep this letter handy and read it over from time to time, and especially as we approach a settlement or trial date in this matter. Then when “push comes to shove,” I can have my mind on issues other than those set forth herein. I will rely on you to bring up any issues that you may have questions, and this letter will serve as a good checklist for you.
I am sure that you will have many, many questions to ask. I would suggest that you start making a list of them and give me a call or make an appointment to come in and see me and we can discuss them at that time.
If you have any further questions or concerns please do not hesitate to contact our office.